The Hindu Editorial Analysis
14 July 2025
Assessing India’s carbon credit trading scheme targets
(Source – The Hindu, International Edition – Page No. – 8)
Topic : GS 3: Conservation, environmental pollution and degradation, environmental impact assessment
Context
The goals of carbon markets should be judged based on the whole economy, not just on specific companies or sectors.
Introduction
The Indian government recently set targets to reduce greenhouse gas emissions for factories (like steel plants) in eight major industries under its Carbon Credit Trading Scheme (CCTS). These industries include aluminium, cement, paper and pulp, chlor-alkali, iron and steel, textiles, petrochemicals, and oil refineries. But how can we tell if these targets are truly ambitious? The key question is: Should we judge these goals by looking at individual factories, entire sectors, or the whole economy?
Our study suggests that to properly judge how ambitious India’s carbon market goals are, we need to look at the overall impact across the entire economy, not just at specific factories or industries.
Understanding PAT Scheme and Its Insights for CCTS
What is the PAT Scheme?
- PAT = Perform, Achieve and Trade
- It is India’s flagship energy efficiency programme for large industries.
- Under PAT:
- Energy-intensive industries are given energy-saving targets.
- Those who overachieve can trade excess savings (as certificates).
- Those who underperform can buy certificates instead of costly upgrades.
Findings from PAT Cycle I (2012–2014)
| Sector | Energy Intensity Trend |
| Paper | Increased |
| Chlor-alkali | Increased |
| Aluminium | Decreased |
| Cement | Decreased |
- At the entity level, results were mixed:
- Some factories used more energy per unit.
- Others used less energy per unit.
- When combining emissions, output, and price data (adjusted for inflation):
- The overall energy used per unit of output decreased.
Key Insights
- Even if some sectors become less efficient, the overall economy can still improve.
- This pattern repeated in other PAT cycles too.
- Takeaway: Market mechanisms in PAT helped reduce overall energy intensity.
- Companies avoided costly upgrades by buying efficiency certificates.
- But this does not confirm whether the reduction was truly ambitious or just business-as-usual.
How Should We Measure Ambition?
| Level | Importance |
| Entity level | Not sufficient to assess ambition |
| Sector level | Can be misleading |
| Economy-wide | Most meaningful for evaluating ambition |
- Market-based systems like emissions trading focus on total reduction, not on who does it.
- So, assessing ambition must be done at the economy-wide level, not by adding up sector/entity performance.
Are Sector/Entity-Level Targets Still Useful?
- Yes, but only for managing financial transfers between industries.
- They do not reflect the true reduction in overall emissions.
- As per a CEEW study, entity/sector targets decide who pays whom, not how much pollution is cut in total.
How Should We Assess CCTS Target Ambition?
- Don’t compare CCTS sector targets with past PAT performance (past may not reflect future potential).
- Instead, compare with:
- India’s Nationally Determined Contributions (NDCs)
- Pathway to net-zero by 2070
- Ambition should increase over time — future goals must be tougher than the past.
Assessment of Industrial Targets under India’s CCTS
- Based on recent modelling aligned with India’s 2030 NDC goals:
- The carbon dioxide emissions intensity of the energy sector (per unit of GDP) is expected to decline by 3.44% annually between 2025 and 2030.
- For the manufacturing sector, the Emissions Intensity of Value Added (EIVA) is projected to decline by at least 2.53% annually in the same period.
- This means:
- Industry is expected to decarbonise more slowly than the power sector, which has more affordable mitigation options.
How Does This Compare with CCTS Targets?
- For the eight industrial sectors covered under the Carbon Credit Trading Scheme (CCTS):
- The combined average annual reduction in EIVA, based on current targets and projections (including production growth and commodity prices), is about 1.68% between 2023–24 and 2026–27.
Key Insight:
- This 1.68% reduction rate is lower than the expected rates for both the energy sector (3.44%) and the manufacturing sector as a whole (2.53%).
- Therefore, early evidence suggests that the industrial decarbonisation targets under CCTS may not be ambitious enough.
Conclusion
While this comparison is not exact — because the carbon trading scheme includes only part of India’s manufacturing sector — it is still the best available benchmark for now, until detailed studies are done for all sectors. In the end, it is the overall (aggregate) drop in emissions intensity that will show whether India’s efforts are truly ambitious.